Operations and Supply Chain Strategies. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield,

Operations and Supply Chain Strategies

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 2, Slide 2

Chapter Objectives

Be able to: Explain the relationship between business and functional strategies and the

difference between structural and infrastructural elements. Describe some of the main operations and supply chain decision categories. Explain the customer-value concept and calculate a value-index score. Differentiate between order winners and qualifiers. Explain why this difference is

important to developing operations and supply chain strategy. Discuss the concept of trade-offs and give an example. Define core competencies and give an example of how they can be used in the

operations and supply chain areas for competitive advantage. Explain the importance of strategic alignment and describe the four stages of

alignment between the operations and supply chain strategy and the business strategy.


Chapter 2, Slide 3

Business Elements

Structural

Difficult to change:– Buildings– Equipment– Computer systems– Other capital assets

Infrastructural

Relatively easy to change:– People– Policies– Decision rules– Organizational

structure


Chapter 2, Slide 4

Definitions• Business Strategy

Long-term master plan for the company; establishes the general direction

• Functional StrategiesFurther develop the business strategy

in segments of the business — must be aligned and coordinated

• Core CompetenciesOrganizational strengths that provide

focus and foundation for the company’s strategies


Chapter 2, Slide 5

A Top-Down Model of Strategy

BusinessStrategy

MarketingStrategy

Financial

Strategy

OperationsStrategy

Operations and Supply Chain Decisions ...

Goals

MissionStatement

Supply ChainStrategy

R&DStrategy


Chapter 2, Slide 6

Operations and Supply Chain Strategies

Design, operation, and improvement of the operations and supply chain systems and processes

– What mix of structure and infrastructure?

– Is the mix aligned with the business strategy?

– Does it support the development of core competencies?


Chapter 2, Slide 7

Functional Strategy

• Translates the business strategy into functional terms.

• Assures coordination with other areas.

• Provides direction and guidance for operations and supply chain decisions.


Chapter 2, Slide 8

Key Interactions

Supply Chain and

Operations

FinanceBudgeting.Analysis.Funds.

MarketingWhat products?What volumes?Costs? Quality?Delivery?

HumanResourcesSkills? Training?# of Employees?

AccountingPerformance measurement systems.Planning and control.

MISWhat IT solutionsto make it all worktogether?

DesignSustainability.Quality.Manufacturability.


Chapter 2, Slide 9

Decisions Guided by the Structural Strategy

Capacity Size?

Timing?

Type?

Facilities Size?

Location?

Technology Equipment?

Processes?

Information systems?

Vertical Integration

Direction?

Extent?


Chapter 2, Slide 10

Decisions Guided by the Infrastructural Strategy

Organization

Control/reward systems?

Centralization/decentralization?

Workforce – skilled/semi-skilled?

Sourcing and Purchasing

Supplier selection/performance metrics?

Procurement systems?

Sourcing strategy?

Planning and Control

Forecasting?

Inventory management?

Production planning/control?

Process and Quality Continuous improvement processes?

Business process management

SPC/Six Sigma

Product and Service Design

Development process?

Organization/supplier roles?


Chapter 2, Slide 11

Value Analysis

• A process for determining the best choice when there are no unambiguous formulas for doing so.

• Helps maintain focus in gathering and assessing relevant data.

(also called a preference matrix).


Chapter 2, Slide 12

Value Index Determination

n

N

nnPIV

1Where:

In = Importance of value dimension (criteria) n

Pn = Performance of candidate with regard to dimension n

N = total number of value dimensions evaluated

(Higher values represent higher importance or performance)


Chapter 2, Slide 13

Value Analysis – Thoughts

Requires definition of criteria and their importance beforehand to avoid bias

It is useful if the importance or weighting values add up to 100%

A threshold score can set by evaluating the current situation, if it exists, using the selected analysis criteria

Requires careful definition of scoring values for performance assessment (highest value represents most desirable result)


Chapter 2, Slide 14

Value Analysis:Introduce new product?

Performance Importance Score ValueCriteria (A) (B) (A x B)

Market potential 30Unit profit margin 20Operations compatibility 20Competitive advantage 15Investment requirement 10Project risk 5

100%

Threshold score = 720


Chapter 2, Slide 15


Performance Importance Score ValueCriterion (A) (B) (A x B)

Market potential 30 6Unit profit margin 20 10Operations compatibility 20 6Competitive advantage 15 10Investment requirement 10 3Project risk 5 4

Threshold score of current product = 720


Chapter 2, Slide 16


Performance Importance Score ValueCriterion (A) (B) (A x B)

Market potential 30 6 180Unit profit margin 20 10 200Operations compatibility 20 6 120Competitive advantage 15 10 150Investment requirement 10 3 30Project risk 5 4 20

Value Index = 700

Threshold score = 720

Not at this time!


Chapter 2, Slide 17

Prioritizing: Where Must We Excel?

Potential dimensions of distinct

competence

• Quality (performance, conformance, reliability)

• Time (delivery speed and reliability, development

speed)

• Flexibility (mix, changeover, volume)

• Cost (labor, material, engineering, quality-related)


Chapter 2, Slide 18

Order Winners and Qualifiers

•Winners: Differentiators — performance not yet duplicated

by competitors Competitive advantage — performance better

than all or most of the competitors

•Qualifiers Minimum acceptable level of performance

Over time, Differentiators Winners Qualifiers as competition intensifies.


Chapter 2, Slide 19

“Best in Class”

MinimumNeeds

Cost DesignQuality

Speed Flexibility

The Idea Behind Prioritizing:


Chapter 2, Slide 20

“Best in Class”

MinimumNeeds

Cost DesignQuality

Speed Flexibility

Comparing Two Software Development Firms


Chapter 2, Slide 21

Measurements

• Performance against:

Customer needs

Business objectives or standards

• Comparisons to competitors

• Comparisons to “best in class.”


Chapter 2, Slide 22

Priority Trade-Offs

• Generally very difficult to excel at all four performance dimensions.

• Some common conflicts– Low cost versus high quality– Low cost versus flexibility– Delivery reliability versus flexibility– Conformance quality versus product flexibility


Chapter 2, Slide 23

Stages of Alignment between Supply Chain and Operations Strategies

Stage 2

Industry Practice

Stage 4

Actively Engaged

Stage 1

Not linked

Stage 3

Participation

(Closing the loop)

External

Internal

Neutral Supportive

Operations and Supply Chain Strategies Case Study

Catherine’s Confectionaries

Operations and Supply Chain Strategies. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield,

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